Absolute return funds managed by groups such as Odey Asset Management, Newton Investment Management and Jupiter Asset Management could be appropriate for investors of most ages, according to a panel of leading financial advisers.
As part of a series, we have explored the members of the FE Adviser Fund Index (FE AFI), where the three portfolios are designed to showcase the funds that financial advisers think are most appropriate for investors of different risk tolerances.
The FE AFI Aggressive portfolio contains funds that the panel thinks could be suitable for an investor in their late 20s, FE AFI Balanced holds funds for a person in their mid-40s and FE AFI Cautious is made up of funds for those in their late 50s. These selections assume the investor is saving for a pension at 65.
In previous articles we have looked at the IA UK All Companies and global equity funds that this panel has included in all three FE AFI portfolios. In this article, we turn our attention to the IA Targeted Absolute Return sector – where there are six funds that have won a place in the FE AFI aggressive, balanced and cautious portfolios.
CF Odey Absolute Return
Performance of fund vs sector over 3yrs
Source: FE Analytics
We start with the fund that has made the lowest three-year total return and that’s CF Odey Absolute Return, which is up by just 3.65 per cent over the period in question. The £763.8m fund is headed up by FE Alpha Manager James Hanbury, with Jamie Grimston and Adrian Courtenay serving as deputies.
It is managed as a long/short equity strategy, which can lead to aggressive positioning – it’s worth noting that over the past five years, the fund has been more volatile and witnessed a higher maximum drawdown than the FTSE All Share index.
The fund has performed strongly (it made 45.59 per cent in 2013, for example) since launch in May 2009 but had an especially poor year in 2016 when it lost 17.85 per cent, which led to its lacklustre three-year numbers. It has had a strong 2017 to date, however, making close to 10 per cent over the year so far.
CF Odey Absolute Return has an ongoing charges figure (OCF) of 0.93 per cent but can levy a 20 per cent performance fee.
Newton Real Return
Performance of fund vs sector over 3yrs
Source: FE Analytics
The next fund to be found in all three FE AFI portfolios is the £10.4bn Newton Real Return fund, which is managed by Iain Stewart and has made 9.30 per cent over the past three years. Over five years it has posted a 17.04 per cent total return while it is up by 52.96 per cent over the past decade.
The fund is one of the best-known members of the sector and is the sixth most researched fund by the professional investors using FE Analytics. Standard Life Investments Global Absolute Return Strategies is the only absolute return fund to receive more attention.
Like all of the products offered by Newton Investment Management, the fund is managed using a global thematic framework that identifies the key long-term forces of change and ways to invest in them. Themes considered under this approach include population dynamics, China influence, debt burden, security and financialisation.
Newton Real Return has a 0.79 per cent OCF.
Jupiter Absolute Return
Performance of fund vs sector over 3yrs
Source: FE Analytics
James Clunie has managed the £1.3bn Jupiter Absolute Return fund since September 2013 and has established a strong reputation at the helm of the long/short vehicle. Over three years, the fund is up by 14.73 per cent. Since Clunie took over it has made 16.16 per cent, compared with a 12.70 per cent gain for its average peer.
The manager’s process aims to exploit inefficiencies in global equity markets and places stock selection at its heart. He uses quantitative screenings to filter the global equity universe, seeking to find cheap stocks to buy and expensive ones to short.
Square Mile Investment Consulting & Research, which gives the fund on an ‘A’ rating, said: “We think Mr Clunie is capable of drawing up a sensible portfolio from a selection of ideas whilst correctly identifying and managing risk. We like his flexibility and responsiveness to market signals and events, which he sees as a chance to pick up opportunities as well as limit exposure to unintended losses.”
Jupiter Absolute Return has an OCF of 0.86 per cent.
BlackRock UK Absolute Alpha
Performance of fund vs sector over 3yrs
Source: FE Analytics
The £379.5m BlackRock UK Absolute Alpha fund, which is managed by Nick Osborne and Nigel Ridge, is also suggested for investor of most ages. Over the past three years it has made a 16.47 per cent while it’s up 23.96 per cent over five years and 37.12 per cent over the past decade.
This is another long/short equity strategy, which draws on the resources of the BlackRock UK equity team. It is designed to deliver returns with low market correlation and low volatility; its net exposure to equities varies from 10 per cent short and 30 per cent long, while volatility is targeted at 5 per cent to 7 per cent.
Looking at positions on a sector basis, the biggest net exposure is to consumer services, financials and industrials. RELX is the portfolio’s largest position, followed by British American Tobacco and Tesco.
BlackRock UK Absolute Alpha has a 0.92 per cent OCF but can levy a 20 per cent performance fee.
Old Mutual Global Equity Absolute Return
Performance of fund vs sector over 3yrs
Source: FE Analytics
The fund making the second highest return and tipped for investors of most ages is Old Mutual Global Equity Absolute Return, which is managed by Ian Heslop, Amadeo Alentorn and Mike Servent. It has made 20.19 per cent over the past three years and is also ahead of the average absolute return fund by wide margins over one- and five-year periods as well.
The $11bn fund is designed to exploit inefficiencies in global equity markets and is process is based around five stock selection criteria that the team believes can generate alpha over time: dynamic valuation, sustainable growth, analyst sentiment, company management and market dynamics.
It is a member of the FE Invest Approved List, with analysts noting: “The team has identified specific sources of alpha in global equity markets, which do not depend on the direction of the market, industry or country exposures. As such, the fund is an excellent diversifier as its capacity to outperform does not depend on traditional sources of alpha.”
Old Mutual Global Equity Absolute Return has a 0.85 per cent OCF but can charge a performance fee of 20 per cent.
JPM Global Macro Opportunities
Performance of fund vs sector over 3yrs
Source: FE Analytics
The final fund that has a place in each of the three FE AFI portfolios is JPM Global Macro Opportunities, which is managed by James Elliot, Shrenick Shah and Talib Sheikh. It has made the highest three-year return of the five funds highlighted in this article, rising 36.74 per cent over the period in question.
As its name suggests, the £961.1m fund has a thematic approach whereby a number of macro themes are identified with the managers determining the best investment strategies to capitalise on them. Current themes being played in the portfolio include China in transition, widespread technology adoption and European gradual growth recovery.
FE Invest, which has the fund on its Approved List, said: “Although the fund has a riskier approach than its absolute return peers (cash plus 7 per cent), we believe the team has the capacity to reach it. The process has proved its robustness over very different investment environments. There is a strong focus on risk management as JP Morgan is one of the leading experts in this field, and we believe investors benefit from advanced risk management strategies.”
JPM Global Macro Opportunities has a 0.78 per cent OCF.